Gold Sell-Off Brings in China and Bargain Hunters

ETF Securities showed that the price of gold hit a six-month low and that it may have broken through technical support at the $1,600 per ounce mark. While this is bad for gold bugs, it was also said to have prompted record Chinese activity.

The report said:

The resurgence of risk appetite over the past month has seen a general clearing out of net long COMEX gold speculative positions to August 2012 levels, as investors seem positioned for ‘the worst is over’ scenarios. As investors look to have been rotating into more cyclical precious metals, like silver, a fall in the gold price has attracted buyers, prompting a gradual rebound in gold positions. Bargain hunters have also begun to emerge, giving some stability to the gold price above $1600, and boosting volumes on the Shanghai Futures Exchange to record levels. While the technical picture has fuelled the liquidation of gold holdings, macro fundamentals suggest a potentially attractive entry level, as global financial markets remain awash with liquidity, global interest rates expected to remain extremely low for the foreseeable future and key macro risks lingering, particularly for the Eurozone economy.

The weekly outlook also offered several other observations. India remained gold’s biggest consumer in 2012, according to the World Gold Council. Chinese demand growth was flat year-over-year, possibly reflecting optimism by Chinese investors that the country managed to avoid a hard landing. Investment demand softened, but central bank buying reached a high going back to 1964 as central banks have to hedge against all of the fresh new money being printed. Other notes in the outlook:

• Platinum and palladium reach multimonth highs on reports of potential supply disruptions in Zimbabwe.
• Palladium hit an 18-month high last weekm while platinum reached US$1,729 per oz as prices of PGMs continue to strengthen on news that the Zimbabwean government will seize nearly 28 hectares of land leased by Zimplats.
• The market is expecting supply shortfalls in the order of 5% and 10% in 2013 for platinum and palladium.

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